The Futurist

Phil Ruthven considers the value of Australia’s primary assets and examines the outlook for growth over the next decade.

Phil Ruthven AM FAICDChairman IBISWorld

01 February 2016

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What is Australia worth?

Australia’s total resources in the middle of 2015 were estimated to be worth $13.5 trillion, almost 8.5 times our gross domestic product (GDP) in the 2015 financial year. After allowing for foreign liabilities of $3 trillion, our net assets were $10.5 trillion, or around $1.1 million per household. The land, natural resources and built environment dominate this balance sheet as the figure shows, with just less than a quarter as a minority share made up of financial assets, intellectual property (IP), equipment, inventories and household durables.

It is encouraging to note that our net foreign debt was a less concerning, and manageable, $906 billion at that time, after allowing for our foreign assets of over $2 trillion. It has passed the $1 trillion mark at the end of 2015, but that is not a reason to worry.

Land, and what is under it, was valued at $6.1 trillion in the 2015 financial year, but the vast majority of that is improved residential land; and in turn concentrated in the nation’s eight capital cities. Rural and other land was valued at a much lower $460 billion, or a lot less than a tenth of the value of residential land.

We have lots of land, some 7.8 million square kilometres of it, which is around the same size as the mid-continent US (excluding Alaska and Hawaii) and only a bit smaller than China’s land mass; but those countries’ populations are 13 times and 58 times our 24 million respectively.

That serves to remind us that we have the capacity to house a much larger population in due course.

It is probable that we will have a population of 42 million by 2050, 70 million by 2100 and around 150 million or more in the middle of the next century. Even then, it is sobering to think that there may be a single city in China with a population of 100 million people.

So, our land value will continue to increase for reasons of population growth alone. As Mark Twain once said: “Buy land. They are not making any more of it.” That’s not quite true however, because Singapore, China and several other countries are creating more land by extending their coastlines; but then again, we are also losing land due to rising tides and various other causes.

Our agricultural land will continue to rise in value, boosted by the food security issue in Asia. We are already hearing of billion-dollar proposals for top-end development by foreign investors – where the majority of our annual water supply is located (60 per cent of it in the top one-third of the continent), and the light and heat units necessary for crop growth. Currently, our rural land and the associated built environment is valued at $300 billion; so who knows what that might be worth in the middle of this century and beyond?

Annual wealth

The value of what is under the land fluctuates with the booms and busts of our mining industry. We have just experienced the sixth mining boom since settlement in 1788, and yet again the value is falling: this time from a new all-time peak in the 2014 financial year of $1.2 trillion.

Inbound tourism alone could quadruple over the next decade and a half and earn more than mineral exports.

Today, our natural resources – whether minerals, rural land or timber – struggle to create annual wealth of around 10 per cent of the total $1.6 trillion. Once they accounted for over 50 per cent of all new annual wealth; but that was more than 150 years ago. The industrial age then created the bulk of our GDP up until the 1960s via manufacturing, utilities and construction.

Intellectual property

However, over the past 50 years, in our new infotronics age of service industries and information and communications technology (ICT), our annual wealth has been created by developed resources rather than natural resources. This was true in the industrial age of course, but more so in our new age.

We are in an age where IP, commercial buildings, equipment and infrastructure – accounting for around a fifth of the nation’s resources – are the driving forces for wealth creation.

When it comes to IP, not many people would know that the $1.6 trillion plus sharemarket value of all listed stocks on the S&P/ASX has two-thirds of that market value in IP and other “intangibles” that are not recorded on the audited balance sheets. This shows that these days, we value IP in the marketplace, even if accountants don’t or can’t account for it. We will, of course, see a renaissance in agriculture this century due, as previously mentioned, to the Asian food-security challenge; and we will have yet another mining boom. But it is unlikely they will combine to produce much more than a tenth of our GDP, as now. Ironically, we will end up with more wealth, with people walking on land (tourism) rather than digging it up. In 2015, we earned over $40 billion in inbound tourism, and nudged $100 billion if we include domestic tourism. Inbound tourism alone could quadruple over the next decade and a half and earn more than mineral exports; such is the tourism boom with Asian travellers, especially from China. So, land is still relevant for additional reasons in an age of service industries.

We can be sure residential values will keep growing in capital cities and fast-growing new coastal cities, of which there are scores; but less so in areas of declining populations in many rural and mining centres.

Our country’s worth

While purely academic, it is interesting to think about what a foreign country might pay for our country, if only because countries – or part of them – have been sold in the past.

The US paid $US240 million (in today’s terms) for the Louisiana Purchase of 2.1 million km2 (28 per cent of Australia’s land mass) from France in 1803; and a not-dissimilar amount for Alaska (20 per cent of Australia’s land mass) from Russia in 1867.

Those acquisitions, nearly half of Australia’s land mass, were acquired for under $US500 million – in today’s terms, a steal, as they say.

We wouldn’t sell for that price, maybe $50 trillion, which means each family could retire with over $5 million each.

But don’t float the idea, because one of several nations could afford that, and would come running with a cheque book – with the risk that a lot of Australians might say yes. Let’s keep the joint, I say.

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